VTB Capital Plc v Nutritek International Corp & Ors

Piercing the corporate veil may justify a discretionary remedy where a controller has misused a company as a façade to conceal wrongdoing. It does not make the controller a party to the company’s contracts. Contractual liability ordinarily depends upon the objective intention and consent of the contracting parties.

Permission to serve a tort claim outside the jurisdiction requires a serious issue to be tried, a good arguable case within a jurisdictional gateway, and proof that England and Wales is clearly or distinctly the appropriate forum. The place where loss was sustained is important but creates no governing presumption. Where relevant events occurred in several countries, the applicable law is determined under sections 11 and 12 of the Private International Law (Miscellaneous Provisions) Act 1995.

VTB Capital Plc v Nutritek International Corp & Ors concerned a loan made by an English bank to finance the acquisition of Russian dairy businesses. The claimant alleged that it had been induced by fraudulent representations concerning the businesses’ value and the independence of the buyer and seller. The defendants were principally foreign companies or individuals.

Arnold J, in [2011] EWHC 3107 (Ch), refused permission to amend the claim so as to treat alleged corporate controllers as parties to the loan agreements. He also set aside permission to serve the tort claims outside the jurisdiction and declined to continue a worldwide freezing order.

The claimant brought three consolidated appeals. The principal questions were whether piercing the corporate veil could impose contractual liability on a controller, whether the requirements for service outside the jurisdiction were satisfied, which law governed the alleged torts, and whether the freezing order should continue.

1. Appeals dismissed. The court upheld the refusal to permit the proposed contractual amendments and the setting aside of permission to serve the tort claims outside the jurisdiction. The worldwide freezing order consequently could not continue.

2. A duly incorporated company has a legal personality distinct from its shareholders and controllers. Exceptionally, a court may pierce the corporate veil where control and impropriety combine in the misuse of the company as a device or façade concealing wrongdoing. The existence of another remedy does not necessarily preclude such relief.

   Any consequential remedy is discretionary and directed to the particular wrong. Piercing the veil does not retrospectively make a controller an original party to the company’s contracts. Imposing contractual obligations in the absence of any objective intention to contract would contradict the consensual basis of contract law. Antonio Gramsci Shipping Corporation v Stepanovs [2011] EWHC 333 (Comm) and Alliance Bank JSC v Aquanta Corporation [2011] EWHC 3281 (Comm) were overruled to the extent that they supported the proposed cause of action.

3. The claimant had a serious issue to try concerning its own loss. Money supplied under the participation arrangement became the claimant’s property, and loss occurred when that money was advanced in reliance on the alleged fraud. The funding was the source of the loan rather than a benefit arising from the tort. There was also a triable, though thin, case that the second defendant participated in the alleged fraud through the agency of one of its directing minds.

4. Service outside the jurisdiction required the claimant to establish a serious issue to be tried, a good arguable case within a gateway, and that England and Wales was clearly or distinctly the appropriate forum. The final requirement presents one overall question. The two-stage analysis used when proceedings served as of right are challenged on forum grounds does not govern an application for permission to serve outside the jurisdiction.

5. The claimant had a good arguable case that damage was sustained in England. That circumstance was weighty but created no presumption that England was the appropriate forum. Applying sections 11 and 12 of the Private International Law (Miscellaneous Provisions) Act 1995, the relevant connections made Russian law substantially more appropriate for the tort issues. The wider centre of gravity was also in Russia, and no real risk of a denial of substantial justice there was established.

6. The freezing-order issue was therefore academic. The court nevertheless observed that a properly established case of substantial fraud, particularly one involving a network of offshore companies, may provide powerful evidence of a real risk of dissipation. Dishonesty must be assessed in its particular context and cannot be treated as an automatic ground for relief.

1. Court of Appeal (Civil Division): By a joint judgment, dismissed the claimant’s three consolidated appeals and upheld the operative order of Arnold J: [2012] EWCA Civ 808 .
2. High Court, Chancery Division: Arnold J refused permission to add contractual claims, set aside permission to serve the tort claims outside the jurisdiction, and held that the worldwide freezing order should not continue: [2011] EWHC 3107 (Ch) .
3. Interim appellate proceedings: The Court of Appeal granted permission to appeal on the remaining jurisdictional and freezing-order issues and temporarily continued the freezing order pending the substantive appeal.